Acacia Research Reports Second Quarter Financial Results

Provides initial business and strategy update, including progress
made since 2018 Annual Meeting

Announces that C. Allen Bradley will be joining the Board as a
highly-qualified, independent director

Marc Booth, former Acacia EVP, rejoins company and named Chief
Intellectual Property Officer

All previous directors have resigned from Acacia Board; President
Robert B. Stewart Jr., General Counsel Edward J. Treska and CFO Clayton
J. Haynes are departing the Company effective August 10, 2018

August 08, 2018 04:00 PM Eastern Daylight Time

NEWPORT BEACH, Calif.--(BUSINESS WIRE)--Acacia Research Corporation(1) ("Acacia" or "the Company")
(Nasdaq: ACTG) today reported results for the three months ended
June 30, 2018.

Revenues for the second quarter of 2018 were $6,485,000, as compared
to $16,457,000 in the comparable prior year quarter.

GAAP and non-GAAP results for the second quarter of 2018 included an
unrealized gain on our equity investment in Veritone, Inc.
("Veritone") (Nasdaq: VERI) totaling $11,347,000, as compared to a net
unrealized loss of $5,411,000 in the comparable prior year quarter.

GAAP results for the second quarter of 2018 included impairment
charges of $29,210,000.

GAAP net loss for the second quarter of 2018 was $28,427,000, or $0.57
per diluted share, as compared to a GAAP net loss of $14,252,000, or
$0.28 per diluted share for the comparable prior year quarter.

Non-GAAP net income for the second quarter of 2018 was $6,582,000, or
$0.13 per diluted share, as compared to a non-GAAP net loss of
$7,232,000, or $0.14 per diluted share for the comparable prior year
quarter. See below for information regarding non-GAAP financial
measures.

Cash and short-term investments totaled $134,844,000 as of June 30,
2018, as compared to $136,604,000 as of December 31, 2017.

Board Composition Update

The Company today announced that C. Allen Bradley will be joining the
Board as an independent director. Mr. Bradley - the former Executive
Chairman of Amerisafe, Inc. (NASDAQ:AMSF) - has served for over 24 years
in corporate leadership positions with great success, and has extensive
financial, legal and operational expertise.

Furthermore, the Company announced that Joseph E. Davis, Fred A. deBoom
and James F. Sanders have resigned from the Board, effective immediately.

Personnel Update

Acacia also announced that Marc Booth has re-joined the Company as Chief
Intellectual Property Officer. Marc was previously an Executive Vice
President at Acacia handling the Company’s patent portfolio until he
left the Company last year.

Additionally, Robert B. Stewart Jr., President, Edward J. Treska,
Executive Vice President, General Counsel and Clayton J. Haynes, Chief
Financial Officer, SVP Finance, Treasurer, are transitioning out of
their roles at Acacia effective August 10, 2018, pursuant to a board
approved transition arrangement. Ed and Clayton have agreed to provide
consulting services to the Company to aid in the transition of their
duties subsequent to August 10, 2018. Clayton’s departure as CFO was not
based on any disagreement with the Company’s accounting principles,
practices or financial statement disclosures. This transition will
facilitate the achievement of the Company’s cost saving goals.

“We are fully committed to implementing the plans we outlined ahead of
the 2018 Annual Meeting of Stockholders, including cutting costs,
protecting stockholder capital, improving corporate governance,
methodically stabilizing the business and reconstituting Acacia’s Board
with highly-credentialed, independent directors with demonstrated
governance and investment skills. We believe that with the right
strategy in place, Acacia can drive real value creation for its
stockholders - and we look forward to working with the Company’s
dedicated employees to achieve this goal.

In our short time on the Board, we have made tangible progress in
executing on our strategic plan and these efforts are ahead of schedule.
Operating expenses have been reduced significantly, decreasing Acacia’s
general and administrative run rate from $13 million per year to
approximately $4.5 million per year. We are also creating a better
system to handle capital allocation decisions in our current investments
and new investments.

We are pleased that Allen Bradley has agreed to join as a director.
Allen brings deep expertise and experience to the Board. He will be a
highly-qualified, independent voice for stockholders. We are committed
to adding additional independent directors in the near term, with the
goal of returning the Board to five members.

Additionally, we are carefully evaluating the patent business to ensure
we are making decisions that are in the best interests of stockholders.
We are excited that Marc Booth has agreed to return to Acacia as Chief
Intellectual Property Officer. This is in line with our plan to bring in
competent, capable people to assess this business. Marc will play a
vital role in managing and monetizing the patents portfolio. He is
deeply familiar with the Acacia’s patent portfolio and will be a safe
pair of hands to manage these assets.

We would like to thank Ed Treska and Clayton Haynes for their
contributions and service to Acacia over the years. We appreciate their
work and their gracious assistance to us as we shift the management of
the company to be more aligned with the size of its operations.”

Statement from Marc Booth, Chief Intellectual
Property Officer:

“I am excited to be returning to Acacia to oversee the Company’s patent
business. I intend to conduct a careful, methodical review of this part
of the business to assess what the opportunities are for delivering
increased value for our stockholders, and I look forward to drawing on
my past experience at Acacia to guide these efforts.”

Biography of C. Allen Bradley, Jr.

C. Allen Bradley, Jr.served as executive chairman of
Amerisafe, Inc. from 2005 to 2016. He served at Amerisafe as Chief
Executive Officer from 2003 to 2015, president from 2002 to 2008, and
Executive Vice President from 2000 to 2002. Mr. Bradley was Amerisafe’s
Executive Vice President and General Counsel from 1996 to 2000. As
Executive Vice President-Operations from 1994 to 1996, he managed
operations for Mor-Tem Systems, Inc.

Mr. Bradley practiced law in Louisiana from 1976 to 1992 and was elected
to the Louisiana House of Representatives, where he served as a state
representative from 1984 to 1992. He also served on the board of the
National Council on Compensation Insurance, Inc. from 2012 to 2016, and
is a past board member of Amerisafe, Inc. He earned his Bachelor of Arts
at Southeastern Louisiana University. He was awarded his Juris Doctor
degree from Louisiana State University.

Consolidated Financial Results - Overview

Financial highlights and operating activities during the periods
presented included the following:

Non-GAAP diluted income (loss) per share, excluding change in fair
value of equity investment in Veritone

$

(0.10

)

$

(0.04

)

$

0.20

$

(0.12

)

Summary Consolidated Financial Results

Three months ended June 30, 2018 compared with the three months
ended June 30, 2017

Revenues (in thousands):

Three Months Ended

June 30,

Change

2018

2017

$

%

Revenues

$

6,485

$

16,457

$

(9,972)

(61)%

In the second quarter of 2018, two licensees individually accounted for
48% and 42% of revenues recognized. In the second quarter of 2017, one
licensee individually accounted for 85% of revenues recognized.

Cost of Revenues (in thousands):

Three Months Ended

June 30,

Change

2018

2017

$

%

Inventor royalties

$

1,241

$

4,273

$

(3,032)

(71)%

Contingent legal fees

1,037

3,236

(2,199)

(68)%

Total inventor royalties and contingent legal fees

$

2,278

$

7,509

$

(5,231)

(70)%

Second quarter 2018 inventor royalties and contingent legal fees expense
decreased primarily due to the decrease in related revenues quarter to
quarter. Second quarter 2018 total revenues, less inventor royalties
expense and contingent legal fees expense was $4,207,000, or 65% of
second quarter 2018 revenues, as compared to $8,948,000, or 54% of
revenues recognized in the comparable prior year quarter.

Three Months Ended

June 30,

Change

2018

2017

$

%

Litigation and licensing expenses - patents

$

2,130

$

4,134

$

(2,004)

(48)%

Second quarter 2018 litigation and licensing expenses decreased
primarily due to a net decrease in litigation support and third-party
technical consulting expenses associated with ongoing licensing and
enforcement programs and an overall decrease in portfolio related
enforcement activities.

General and Administrative Expenses (in thousands):

Three Months Ended

June 30,

Change

2018

2017

$

%

General and administrative expenses

$

5,892

$

5,247

$

645

12

%

Non-cash stock compensation expense - G&A

521

1,449

(928

)

(64

)%

Non-cash stock compensation expense - Veritone profits interests

685

38

647

1,703

%

Total general and administrative expenses

$

7,098

$

6,734

$

364

5

%

Second quarter 2018 general and administrative expenses increased 12%,
primarily due to an increase in proxy related legal and consulting fees,
partially offset by a reduction in personnel and severance costs in
connection with headcount reductions in 2017.

Non-cash stock compensation expense decreased due to a decrease in
expense for market-based performance stock options expensed in the
second quarter of 2017. Non-cash stock compensation expense related to
Veritone profits interests increased due to the increase in the fair
value of our Veritone related profits interest units, consistent with
the increase in the underlying Veritone stock price during the second
quarter of 2018. Profits interest related non-cash stock compensation
expense is adjusted each reporting period for changes in estimated fair
value, which is primarily based on the quoted market price of Veritone
common stock.

Impairment of Patent-Related Intangible Assets (in thousands):

Three Months Ended

June 30,

Change

2018

2017

$

%

Impairment of patent-related intangible assets and other

$

29,210

$

—

$

29,210

100

%

Impairment charges for the second quarter of 2018 primarily reflects the
impact of a reduction in estimated future net cash flows for certain
patents. These impairment charges consisted of the excess of the asset’s
carrying value over its estimated fair value as of June 30, 2018. These
impairment charges only impacted certain patents that we incurred
acquisition costs for when initially acquired in prior periods. These
impairment charges did not impact any portfolios that we did not incur
acquisition costs for when initially acquired, which are not reflected
on our balance sheet pursuant to U.S. Generally Accepted Accounting
Principles.

Investments at Fair Value

Our investment in Veritone consists of 4,119,521 shares of Veritone
common stock and 1,120,432 common stock warrants and is accounted for at
fair value. As such, our investment is marked to market at each balance
sheet date, primarily based on fluctuations in Veritone's stock price
each period, with related unrealized investment gains and losses
reflected in the consolidated statement of operations. Second quarter
2018 results included an unrealized investment gain totaling
$11,347,000, related to the application of the fair value method of
accounting to our equity investment in Veritone. Total net investment
loss for the second quarter of 2017 totaled $5,411,000 primarily
comprised of an unrealized loss related to the application of the fair
value method of accounting to our equity investment in Veritone,
partially offset by an unrealized gain on the exercise of the Veritone
warrant and the conversion of our Veritone loans to equity.

Financing Activities. In May 2018, we repurchased 1,190,420
shares of common stock at a weighted average price of $3.89 for a total
of $4,634,000.

INFORMATION ABOUT NON-GAAP FINANCIAL MEASURES

As used herein, “GAAP” refers to accounting principles generally
accepted in the United States of America. To supplement our consolidated
financial statements prepared and presented in accordance with GAAP,
this earnings release includes financial measures, including (1)
non-GAAP net income and (2) non-GAAP Earnings Per Share (“EPS”), that
are considered non-GAAP financial measures as defined in Rule 101 of
Regulation G promulgated by the Securities and Exchange Commission.
Generally, a non-GAAP financial measure is a numerical measure of a
company’s historical or future performance, financial position, or cash
flows that either excludes or includes amounts that are not normally
excluded or included in the most directly comparable measure calculated
and presented in accordance with GAAP. The presentation of this non-GAAP
financial information is not intended to be considered in isolation or
as a substitute for, or superior to, the financial information prepared
and presented in accordance with GAAP.

We use these non-GAAP, or pro forma, financial measures for internal
financial and operational decision making purposes and as a means to
evaluate period-to-period comparisons of the performance and results of
operations of our core business and strategic partnerships. Our
management believes that these non-GAAP financial measures provide
meaningful supplemental information regarding the performance of our
core business and strategic partnerships by excluding non-cash stock
compensation charges (excluding non-cash stock compensation for Veritone
investment related profits interests) and non-cash patent amortization
charges (including impairment charges) that may not be indicative of our
recurring core business and strategic partnerships operating results.
These non-GAAP financial measures also facilitate management’s internal
planning and comparisons to our historical performance and liquidity. We
believe these non-GAAP financial measures are useful to investors as
they allow for greater transparency with respect to key metrics used by
management in its financial and operational decision making and are used
by our institutional investors and the analyst community to help them
analyze the performance and operational results of our core business and
strategic partnerships.

Non-GAAP Net income and EPS. We define non-GAAP net income as net
income calculated in accordance with GAAP, plus non-cash stock
compensation charges and non-cash patent amortization and impairment
charges. Non-GAAP EPS is defined as non-GAAP net income divided by the
weighted average outstanding shares, on a fully-diluted basis,
calculated in accordance with GAAP, for the respective reporting period.

Due to the inherent volatility in stock prices, the use of estimates and
assumptions in connection with the valuation and expensing of
share-based awards and the variety of award types that companies can
issue under FASB ASC Topic 718, management believes that providing a
non-GAAP financial measure that excludes non-cash stock compensation
allows investors to make meaningful comparisons between our recurring
core business and strategic partnerships operating results and those of
other companies period to period, as well as providing our management
with a critical tool for financial and operational decision making and
for evaluating our own period-to-period recurring core business and
strategic partnerships operating results. Non-cash stock compensation
for our Veritone investment related profits interests are not excluded
as the related liability is marked to market along with our equity
investment in Veritone, and therefore, the liability will fluctuate
consistent with increases or decreases in the fair value of our Veritone
equity investment.

Similarly, due to the variability associated with the timing and amount
of patent acquisition payments and estimates inherent in the
capitalization, amortization and impairment of patent acquisition costs,
management believes that providing a non-GAAP financial measure that
excludes non-cash patent amortization and impairment charges allows
investors to make meaningful comparisons between our recurring core
business and strategic partnerships operating results and those of other
companies, and also provides our management with a useful tool for
financial and operational decision making and for evaluating our own
period-to-period recurring core business and strategic partnerships
operating results.

There are a number of limitations related to the use of non-GAAP net
income and EPS versus net income and EPS calculated in accordance with
GAAP. For example, non-GAAP net income excludes the impact of
significant non-cash stock compensation charges and non-cash patent
amortization and impairment charges that are or may be recurring, and
that may or will continue to be recurring for the foreseeable future. In
addition, non-cash stock compensation is a critical component of our
employee compensation programs and non-cash patent amortization and
impairment charges reflect the cost of certain patent portfolio
acquisitions, amortized on a straight-line basis over the estimated
economic useful life of the respective patent portfolio, or impaired and
may reflect the acceleration of amortization related to recoupable
up-front patent portfolio acquisition costs. Management compensates for
these limitations by providing specific information regarding the GAAP
amounts excluded from non-GAAP net income and EPS and evaluating
non-GAAP net income and EPS in conjunction with net income and EPS
calculated in accordance with GAAP.

The accompanying table below provides a reconciliation of the non-GAAP
financial measures presented to the most directly comparable financial
measures prepared in accordance with GAAP.

Due to uncertainties related to our ability to utilize certain deferred
tax assets in future periods, we have recorded a full valuation
allowance against our net deferred tax assets for the periods presented
herein. Tax expense for the periods presented reflects foreign taxes
withheld on revenue agreements with licensees in foreign jurisdictions
and other state taxes, and the impact of the full valuation allowance
recorded for net operating loss and foreign tax credit related tax
assets generated during the periods. As such, no tax benefit was
recognized for net operating loss and foreign tax credit related tax
benefits generated during the applicable periods presented. Accordingly,
there are no income tax effects related to our adjustments to arrive at
our non-GAAP measures included herein.

______________________________________________

A conference call is scheduled for today. The Acacia Research
presentation will start at 1:30 p.m. Pacific Time (4:30 p.m. Eastern).

To listen to the presentation by phone, dial (888) 394-8218 for callers
in the U.S. and Canada, and +1 (323) 701-0225 for international callers,
both of whom will need to enter the conference ID 6059936 when prompted.

There will be a live webcast hosted by NASDAQ that will be available for
30 days and can be accessed at Acacia’s website at www.acaciaresearch.com.

ABOUT ACACIA RESEARCH CORPORATION

Founded in 1993, Acacia Research Corporation (ACTG) is an industry
leader in patent licensing and partners with inventors and patent owners
to unlock the financial value in their patented inventions. Acacia
bridges the gap between invention and application, facilitating
efficiency and delivering monetary rewards to the patent owner.

This news release contains forward-looking statements within the
meaning of the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995.These statements are based upon
our current expectations and speak only as of the date hereof.Our
actual results may differ materially and adversely from those expressed
in any forward-looking statements as a result of various factors and
uncertainties, including the ability to successfully develop licensing
programs and attract new business, rapid technological change in relevantmarkets, changes in demand for current and future intellectual
property rights, legislative, regulatory and competitive developments
addressing licensing and enforcement of patents and/or intellectual
property in general, general economic conditions and the success of our
investments.Our Annual Report on Form 10-K, recent and
forthcoming Quarterly Reports on Form 10-Q, recent Current Reports on
Form 8-K, and any amendments to the forgoing, and other SEC filings
discuss some of the important risk factors that may affect our business,
results of operations and financial condition.We undertake no
obligation to revise or update publicly any forward-looking statements
for any reason.

The results achieved in the most recent quarter are not necessarily
indicative of the results to be achieved by us in any subsequent
quarters, as it is currently anticipated that Acacia Research
Corporation’s financial results will vary, and may vary significantly,
from quarter to quarter.This variance is expected to result from
a number of factors, including risk factors affecting our results of
operations and financial condition referenced above, and the particular
structure of our licensing transactions, which may impact the amount of
inventor royalties and contingent legal fees expenses we incur period to
period.

ACACIA RESEARCH CORPORATION

SUMMARY FINANCIAL INFORMATION

(In thousands, except share and per share information)

(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Revenues

$

6,485

$

16,457

$

68,578

$

25,311

Operating costs and expenses:

Cost of revenues:

Inventor royalties

1,241

4,273

22,985

4,939

Contingent legal fees

1,037

3,236

16,796

3,863

Other

—

—

4,000

—

Litigation and licensing expenses - patents

2,130

4,134

4,875

10,520

Amortization of patents

5,278

5,571

10,608

11,086

General and administrative expenses

7,098

6,734

10,477

13,650

Other expenses - business development

327

433

493

753

Impairment of patent-related intangible assets and other

29,210

—

29,210

—

Total operating costs and expenses

46,321

24,381

99,444

44,811

Operating loss

(39,836

)

(7,924

)

(30,866

)

(19,500

)

Other income (expense):

Gain on conversion of loans and accrued interest

—

2,671

—

2,671

Gain on exercise of Primary Warrant

—

4,616

—

4,616

Change in fair value of investment, net

11,347

(12,698

)

(29,750

)

(12,698

)

Equity in earnings (losses) of investee

—

(14

)

—

(14

)

Other income

268

563

475

1,259

Total other income (expense)

11,615

(4,862

)

(29,275

)

(4,166

)

Loss before provision for income taxes

(28,221

)

(12,786

)

(60,141

)

(23,666

)

Provision for income taxes

(285

)

(1,478

)

(476

)

(2,719

)

Net loss including noncontrolling interests in subsidiaries

(28,506

)

(14,264

)

(60,617

)

(26,385

)

Net loss attributable to noncontrolling interests in subsidiaries

79

12

152

303

Net loss attributable to Acacia Research Corporation

$

(28,427

)

$

(14,252

)

$

(60,465

)

$

(26,082

)

Net loss attributable to common stockholders - basic and diluted

$

(28,427

)

$

(14,252

)

$

(60,465

)

$

(26,082

)

Basic and diluted loss per common share

$

(0.57

)

$

(0.28

)

$

(1.20

)

$

(0.52

)

Weighted average number of shares outstanding, basic and diluted

50,061,812

50,499,248

50,345,808

50,416,611

Reconciliation of GAAP Net Loss and EPS to Non-GAAP Net Income
(Loss) and EPS

As used herein, “Acacia Research Corporation,” “we,” “us,” and “our”
refer to Acacia Research Corporation and/or its wholly and
majority-owned operating subsidiaries. All intellectual property
acquisition, development, licensing and enforcement activities are
conducted solely by certain of Acacia Research Corporation’s wholly
and majority-owned operating subsidiaries.

(2)

Due to uncertainties related to our ability to utilize certain
deferred tax assets in future periods, we have recorded a full
valuation allowance against our net deferred tax assets for the
periods presented herein. Tax expense for the periods presented
reflects foreign taxes withheld on revenue agreements with licensees
in foreign jurisdictions and other state taxes, and the impact of
the full valuation allowance recorded for net operating loss and
foreign tax credit related tax assets generated during the periods.
As such, no tax benefit was recognized for net operating loss and
foreign tax credit related tax benefits generated during the
applicable periods presented. Accordingly, there are no income tax
effects related to our adjustments to arrive at our non-GAAP
measures included herein.

(3)

Calculated based on pro forma non-GAAP net income (loss)
attributable to common stockholders - diluted, not shown.